Not for sissies
Africa is often touted by international equipment vendors, operators and analysts as a kind of new El Dorado for mobile telecommunications. But the continent’s markets are complex and diverse, with greatly varied levels of development, and it’s easy for investors to get burnt.
That’s the view of Julia Lamberth, sector leader for Africa telecoms at Ernst & Young, which recently published a research report, Africa Connected, that goes into detail about telecom opportunities on the continent.
There are still enormous opportunities for operators to capture subscriber growth, especially in countries with low cellphone penetration levels. However, escalating competition and regulatory and political challenges mean that some operators — especially third, fourth and fifth licensees — are struggling financially.
The bigger operators, such as MTN and France Telecom’s mobile arm Orange, are financially sound, but smaller carriers licensed more recently have had a harder time of it, Lamberth says. “They tend to be highly leveraged, borrowing lots of money for capital expenditure,” she says. “It wouldn’t necessarily have been a problem if we hadn’t had this economic downturn. But it’s become [a matter of] survival for some of these operators — the problem is they have to keep spending.”
She cautions that this situation does not apply to all markets in Africa. “But we are starting to see patterns. If you are moving into a country where there is a strong incumbent and the presence of one or two larger regional players, there will always be growth, but it’s not a guarantee that all operators will be successful.”
Lamberth says the perception, especially internationally, that Africa is waiting to be “plundered” by telecom operators is simply incorrect. “The idea that you can stick up a tower and make gazillions is wrong.”
She says international operators keen to enter African telecoms — and there are plenty of them, from the Middle East to China and the US – should examine each country individually and not regard the continent simply as a single market.
There is a danger that a bubble could develop in African telecoms, Lamberth says. “The growth in telecoms has contributed so much to Africa’s general economic development that we don’t want it to become a bubble and then burst.”
She also worries that some markets are deregulating and liberalising too quickly. Botswana, she says, has thrown open its market completely. Ghana, with a population of only 23m, has six licensed mobile carriers, with pan-African operators Zain, Vodafone, MTN, Glo Mobile and Millicom all going head to head for market share.
Lamberth thinks the bigger operators — particularly Zain, Vodafone and MTN — will play a consolidating role on the continent, snapping up smaller mobile operators as they seek to build bulk.
Interest in Africa — in new licences, the privatisation of fixed-line assets, and acquisitions — remains red hot.
Chinese operators bear watching, particularly China Mobile, which has more than 400m subscribers in its home market. It has stated that the only market outside China it’s interested in is Africa.
How and when it will expand is, however, hard to predict, says Lamberth. It may depend on how quickly the Chinese market reaches saturation.
Because of China Mobile’s low-cost approach in China, Lamberth believes the company can operate in Africa more profitably than many of the other big players. Its close relationship with Chinese equipment manufacturers, particularly ZTE and Huawei, could also help it grow.
Surprisingly, Ernst & Young’s report shows that some African countries’ telecom industries remain almost completely undeveloped. These virgin markets are in the centre of the continent (see map). Countries with a lower than 20% penetration include Malawi, Mozambique, Rwanda, Zimbabwe, the Democratic Republic of Congo, Chad, Burundi, the Central African Republic and Niger.
Telecom penetration is particularly low in north east Africa, where teledensity in countries such as Djibouti, Eritrea, Somalia and Ethiopia is around 2%. Despite the clear opportunities, Lamberth concedes only brave operators would venture into those markets because of the high political and regulatory risks.
While some parts of the continent have barely got off the ground, more developed markets, such as Morocco, Tunisia and SA, are already moving to the next phase of mobile – the provision of wireless broadband Internet access.
West African markets, especially Ghana, Côte d’Ivoire and Nigeria, are also maturing fast. “They’re still in the growth phase, but are starting to experience the characteristics of mature markets.”
Telecom penetration Africa-wide is 36%, according to Lamberth. She believes it could eventually reach 60% or even 70%. Because of poverty, it’s unlikely that Africa will achieve the universal access seen on other continents.
But the cellular market sizes always tends to surprise on the upside, she adds. “We are constantly surprised by take-up of mobile services.”
African telecoms market – give your views
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